The British government’s financial watchdog has been accused of blocking new community projects aimed at challenging the dominance of big energy corporations.

In the past six weeks, the Financial Conduct Authority (FCA) has prevented a number of new applications for energy co-ops on the grounds that they did not have enough members to participate.

However, campaigners argue this has not been an issue for green energy co-ops in the past.

Mike Smyth, chairman of the Energy4all group told The Guardian that the decisions to block new co-ops came “out of the blue”.

“The government’s policy is that all new renewable energy generation from next year should be partially or more owned by a community energy organization,” he said. “And the FCA is actively undermining this policy by removing the most appropriate business for that. It makes things more difficult, stifles innovation, and precludes participation by people in the energy sector.”

Further criticizing the decision was shadow energy minister Tom Geatrix, who sent a letter to FCA chief executive Martin Wheatley, warning that it could put the future of alternative energy supplies at risk.

“This sudden change threatens a model that combines the twin goods of de-carbonisation and community involvement in energy,” he said, adding “The FCA must urgently reconsider their approach – and [Secretary of State for Energy and Climate Change ] Ed Davey needs to wake up and get a grip to prevent lasting damage to the prospects of more community energy projects in the UK.”

However, a spokesperson from the Department of Energy and Climate Change said the root of the problem was whether the co-operative proposals were within the FCA guidelines, which state that members have to produce and sell services to its members. Because energy co-ops tend to be too small to deliver power to their members, they would have to sell it directly via the National Grid.

“We are now working with the FCA to ensure the right balance is struck between member protection and realizing the enormous potential of community energy,” the spokesperson added.